Private trades in Spotify shares are valuing the music streaming company at about $16bn, raising the prospect of a bumper flotation next year, according to a report by Reuters. Strong demand for the shares and rising subscription numbers at the Swedish business means it could be worth at least $20bn when it goes public.
The market for shares prior to their public listing allows employees and founders of big name private companies such as Spotify, Airbnb and Uber to cash in on some of their paper wealth, while letting other investors get a head start on the listing.
Early investors tired of waiting for a payout are selling shares too. While this secondary market was hit by Facebook’s chaotic listing in 2012, it has recently made a comeback.
A $13bn price tag would value Spotify, the world’s biggest music streaming company with more than 140 million active users, at around four times its 2016 sales.
But investors and sector bankers not involved with the company said Netflix’s valuation of seven times expected 2017 sales was a more appropriate benchmark, supporting speculation of a price tag of at least $20 billion around listing.
Spotify is aiming to file its intention to float with US regulators towards the end of this year in order to list in the first or second quarter next year, a sources told the news agency. The speculation is good news for Edinburgh investment firm Baillie Gifford which has a stake in Spotify, as well as Airbnb, Dropbox and other technology firms.
An investor survey led by technology investment and advisory firm GP Bullhound, which owns shares in Spotify, estimated the company’s valuation could reach $50bn in a few years.
The investors and venture capitalists polled pointed to Spotify’s position as the “undisputed market leader” in music streaming, and to rapid growth in its paying users from five million in 2012 to more than 60 million today.
While its net losses doubled last year to $600m, a more than 50% increase in revenues to $3.4bn has raised hopes it is on the right track to make money.
A bumper equity valuation would give Spotify a currency to help meet the challenge from rivals such as Apple Music and Amazon Music, and potentially fund an expansion into adjacent businesses, such as video, or geographies it has yet to reach.
“It’s hard to speculate on Spotify’s valuation since we only have historic results prior to the most recent renegotiation with the music majors,” cautioned Louis Citroen, an analyst at Arete Research.
“But a $20 billion valuation sounds punchy as it implies both that Spotify can continue growing customers at a fast pace, and that it might achieve a double-digit margin.”
“We can believe in the customer growth, but are less sure about profitability given high royalty costs and limited differentiation with rivals on content, price or technology.”